The oil exploration business is a tough one, and is definitely not for the faint-hearted investor.
When it goes right, as it is doing for Leni Gas & Oil right now, shareholders can make multi-bagger profits in a very short space of time — the Leni share price is up 500% in less than six months.
But at the other end of the scale, there are disappointing falls, exacerbated by falling world oil prices — an expected glut next year has led Goldman Sachs to forecast prices for Brent Crude as low as $80 per barrel.
SOCO International
SOCO International (LSE: SIA) has been a great success over the past 10 years, with its price more than five-bagging to August this year. But since then we’ve had a fall, and the shares are down more than 25% in two months to 321p today — having hit a 52-week low of 310.25p on 20 October.
First-half results released on 28 August were pretty much in line with expectations, so there’s no shock there, but with full year production guidance at 14-15,000 barrels of oil equivalent per day, bearishness in oil markets is hurting the share price.
Afren
Shares in Afren (LSE: AFR) hit a 52-week closing low of 92p on 27 October, before picking up a little to 93.7p as I write — but that’s still down 37% over the past 12 months.
For Afren, the crunch came on 31 July when the firm announced that the CEO and COO had been suspended after evidence came to light of “the receipt of unauthorised payments potentially for the benefit of the CEO and COO“. Two associate directors were also suspended shortly afterwards.
An independent review confirmed the allegations, but said there was no material loss to the company — but all four directors were dismissed, the CEO and COO for gross misconduct.
Rockhopper
Over at Rockhopper Exploration (LSE: RKH), we’ve seen the biggest fall of the three — of 54% over 12 months to 70.35p, taking in a closing low of 68.75p on 27 October.
Rockhopper is sitting on what appear to be strong reserves in the Falklands Basin, although the current financial viability of deep reserves in difficult regions can be hit badly when prices fall much below $100 per barrel.
But the company has plenty of cash in the bank, and its reserves estimated at 114 million barrels of oil and 277 billion cubic feet of natural gas are not to be sniffed at.
I think Rockhopper could be a bit of a bargain at these prices — but you’ll need a strong nerve to hold out for a longer-term oil price recovery.